House Speaker John Boehner says, "We're broke; Broke going on bankrupt." His spokesman, Michael Steel, says, "If an American family is spending more money than they're making year after year, they're broke." That may be true for a family, but as an analogy for government it just doesn't work. The definition of being broke is the inability to pay your bills, and the American government is not having any trouble paying its bills -- and there is no reason to believe it will have any trouble in the future either.
The fact is that a government has options that are not open to a family. They can sell bonds, raise taxes, and if necessary even print money. It would be preferable to not print money to cover debts, and taxes should be raised very judiciously -- but both options are always available to government when necessary.
In fact, this country is not nearly as overtaxed as Republicans would have us believe. In a survey of 28 developed nations by the Organization for Economic Development and Cooperation it was shown that only two of those 28 nations have a lower tax burden than the United States -- Mexico and Chile. Currently all taxes totaled together (federal, state and local) comprise about 24% of U.S. Gross Domestic Product (GDP) -- by comparison, Great Britain's tax burden is 34.3% of GDP, Germany's is 37%, and Denmark's is 48.2% (the highest of all 28 countries).
There is clearly room to raise taxes in the U.S. if necessary (especially on the richest Americans, who are making more money and accumulating more wealth than ever). Just abolishing the Bush tax cuts for the rich would erase $400 billion a year from the deficit -- and taxes would still be lower than at any time since World War II.
But the United States most often covers its deficit by selling bonds. These bonds create a debt that in good times is paid through increased production and creation of new jobs (both of which bring in more tax revenue for the government). And that is what the government should be doing now -- spending money to create new jobs (while stopping job outsourcing) so new tax revenues can be created as Americans go back to work. Instead we are slashing government spending, which puts a downward pressure on GDP and job creation and growth.
If the government was really broke, unable to pay its bills, then it would make sense that no one would want to purchase the government's bonds. After all, no one wants to loan money that can't be repaid. But that is not the case. The U.S. is having no trouble selling bonds (borrowing money) and they are currently doing it at historically low interest rates. And those government bonds still maintain the highest ratting of AAA (by the rating firm of Standard & Poors).
Does the government currently owe a lot of money? Yes. Is the government broke? Not even close. But we might get there if we keep following the failed Republican economic policies. There is only one way out of this recession, and it is not to slash spending. It is through stimulus spending and job creation. The recession will end when Americans go back to work.
The government is not broke, but ordinary Americans are. We must stop listening to the Republican lies and do what is necessary to put people back to work. Why must we relearn that lesson every couple of generations?
Nicely stated Ted. Thanks for putting this out there. It needs to be repeated over and over. The Center for American Progress has several good pieces hitting these same points here.
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